The ADP report issued today before the official jobs report showed another loss of almost 700,000 jobs last month. This will bring the total in the last 12 months to a staggering 4,000,000 jobs lost. The question becomes one of turning around the Titanic and while most agree it is possible, all agree it will take a long, long time. The stock market is up following the jobs report and one has to ask the question how it can be up given such a bleak economic report? It’s a good question, and one that allows for another stock market 101 lesson.

The stock market looks ahead. When the news is bad, the market generally sells off ahead of the dismal reports. That is why the market is down some 23% on the Dow since the first of the year.

It anticipated the bad news.

The market viewed the incoming administration’s short term ability skeptically, given the growing record deficits and the uncertainty of America’s ability to collectively swallow the stimulus plan that was to be aptly lain before them in the days to come. Stock markets do not like government intervention and when it became apparent that government was going to get more involved in “solving the problem”, the markets sold off.

Obviously, this is an oversimplified version of the story for illustrative purposes, but you get the point. There are serious issues that need to be addressed, but as a general rule, markets do not like intervention and the weakness in the market reflects that attitude.

Simply put, Government needs to stop “solving the problem”.

OK, I’ll climb off of my soapbox and get back to the lesson.

Is this decline a permanent condition? No, but it is priced into the scenario. As to what the market does from here, investors need to understand that markets will go through bull and bear movements (20% up or down) within bull or bear cycles. So, with the market at 6750, we could get a 30 percent move up and a subsequent 25% move down or vice-versa. That is what makes this market a trading vehicle rather than an investment vehicle. And, as it pertains to Joe and Jane Sixpack trying to accumulate wealth in a traders market…well, let’s just say I am not the biggest fan of good people getting hosed.

When traders have control of the market (like they do now), the moves are violent and that whipsaws the emotions of the serious long-term investor (the aforementioned Mr. and Mrs. Sixpack) forcing imprudent decisions. The only thing that will resolve the conflict within the cycle is a return to positive growth. That is why the Fed spends so much time focusing on keeping the economic foundation plausible. With that said, growth is related to consumer confidence. Nothing will be resolved and growth restored until Americans believe that they will have a job, a steady income, and a roof over their heads.

It is not the government’s job to spend our way out of this. That’s up to us, and you can bet that we will not do so on any measurable macro level (GDP) until we trust that leadership inside the beltway has a clue…do you see the conundrum? Instead of working on trust building, they are too busy “solving the problem”.

In my opinion we are not seeing economic turnaround yet. However, the dawn is darkest before the storm and I say again that I am starting to see signs of some rebound in economic activity (the jobs report notwithstanding). Remember the market looks ahead. If the market sees the same positive movement that I am starting to see and we truly do see positive growth by the end of the year, the rally will start sometime in the early to late summer.

Now, if we could just get the government to believe that enough is enough and that the turnaround is in the hands of our good friends the Sixpacks, and that all Joe and Jane need to do is believe that tomorrow will be better than today; the markets can start to believe in themselves again.

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